Financial Mechanisms needed for farmers to implement Soil and Water Conservation in the Upper Tana Catchment Davies Onduru Fredrick Muchena Sjef Kauffman

Contents Objective of the Study Approach and Methodology Findings Conclusion

Objective  To verify possible financial mechanisms for farmers to invest in Soil and Water Conservation  Identify current funding sources (describe existing models);  Identify new (potential) funding sources for soil and water conservation activities  Identify farmers’ preferences on investment support and stakeholders view on investment arrangements

Approach and Methodology  Interviews of institutions in Upper Tana catchment and in Nairobi  Farmers preferences through household interviews in three sub-catchments in Upper Tana

Current Funding Sources in Natural Resource Management-1 (i)Grants  Registered community groups/associations  Requirement of farmer contribution (10-30%)  Access to grants through proposals  Form of grants: Cash grants, tools for work, food for work, cash for work etc. Examples Food for Asset Model of the Catholic Diocese of Meru Model of Water Fees for conservation through WRMA/WSTF Natural Resources Management Project: Microgrants system through World Bank Credit Facility to the Government of Kenya [WRMA, KFS, NIB] Smallholder Horticultural Marketing Programme (SHoMaP) Njaa Marufuku Kenya

Current Funding Sources in Natural Resource Management-2 (ii)Loans with Risk sharing/loan guarantee systems  Include banks/lending institutions : Offer loans and administer credit scheme to smallholder farmers targeting selected crop and or livestock enterprise, business entity (e.g. agrovets) etc.;  Integrate risk sharing mechanism where some partner organisations in the Model sets up a fund to cater for risks that banks would incur suppose smallholders default or production is negatively affected by vulgaries of weather. Examples Kilimo Biashara (AGRA, IFAD, Equity Bank, GoK, Amiran) Rural Outreach of Financial Innovations and Technologies (PROFIT): Rural finance and outreach component has a risk sharing facility for levering commercial loans [GoK, USAID, IFAD, AGRA, BRAC Dev. Institute, Consultative Group to Assist the Poor etc.)

Current Funding Sources in Natural Resource Management-3 (iii) Agri-business and value chain linkages These models are focusing on selected crops/commodities, which are for food security and income generation Examples Proposed 2SCALE (Towards Strategic Clusters in Agribusiness thro’ Learning and Entrepreneurship) project of IFDC Commercial Village Model promoted by Farm Concern International  Key message-Look for markets for farmers/producer groups

Potential sources of funding A) National sources 1.Farmer local contribution (contribute in kind in form of labour, and partly tools and equipment) %total costs 2.Water Resources Management Authority water fee; and Water Services Trust Fund (through WRUAs Development Cycle) 3. Downstream Fees paid by large water users KenGen (fees to Regional Development Authorities) Nairobi City Water and Sewerage Company (Nairobi Water)-currently pays water fee to WRMA. Irrigators (water fee paid to WRMA) 5.Carbon Credit  Potential source but is not fully developed yet in Kenya  KenGen, Lake Turkana Wind Power, Greenbelt Movement involved in carbon trade  Below ground estimates in Upper Tana: US$ 7-13 per ha annually 6.Public funding: Potential public benefits include regulated river flows, ground water recharge, reduced flood risk etc.

Potential sources of funding B) International Sources IFAD and other International Funds for TaNRMP to kick-start the GWC Investment Fund

Farmer’s preferences on investment support Technical Assistance: Advice/extension on SWC practices Training and demonstration Investment support Inorganic fertiliser Crop protection material Off-farm available planting materials Tools and equipment Organic fertiliser Labour Locally available planting materials  Enhancing access to planting materials: fertilisers at subsidised prices, financial support (loans and grants)  Tools and equipment: grants/voucher or through credit (low interest loan)

Respondents Views on Investment arrangements A mix of grants and suitable credit facility is preferred by respondents with the following elements: (i) Grants: For  Capacity building (sensitisation/farmer training), coordination and management of activities;  Enhancing farmers access to inputs e.g. through a voucher system  Setting up risk-sharing and guarantee mechanism (ii) Credit facility Linked to income generating activities that directly/indirectly target conservation activities: high value crops on terraces, raising tree seedlings, bee keeping in riverine areas etc. Risk sharing mechanisms and guarantee funds; soft loans ( iii) Farmer contribution: Farmers own labour and tools etc.

Conclusion  Smallholders prefers technical assistance and investment support on Soil and Water Conservation.  A feasible investment mechanism need to take on-board both short-term production and long-term investments required for SWC activities (entrepreneurial plan)  Grant-based models, credit based models with risk sharing mechanisms and models that emphasise value chain development and market linkages can be combined in various shades to design a Sustainable Commercial Investment Package for implementation of soil and water conservation

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